Investors everywhere to feel fallout

The cost of the devastating floods in Queensland won’t just be limited to that state, as investors around the country are set to suffer the effects of profit downgrades from major companies.

Many businesses have yet to quantify the effects of the latest damage in south-east Queensland, but there are expectations that in some cases it could be severe.

“Certainly in the short term there are going to be a few significant profit downgrades and quite a few moderate profit downgrades," UBS equity strategist David Cassidy said.

“Overall you are probably only talking about a couple of per cent to aggregate earnings but there will be a few significant downgrades."

Macquarie Equities estimates the damage will cost $6 billion overall, and some of Australia’s more prominent companies have already warned they will be affected.

Rural services group
Elders
yesterday said trading in flood-affected regions had been interrupted, with a number of operations suspended for reasons ranging from direct flood impact, concern for the safety of employees, precautionary judgment or a lack of access to transport.

There were isolated instances of damage to Elders sites, and it has first-loss exposure of $300,000.

However, in what could have a more severe financial impact, some of its clients suffered financial loss through floods, and sales activity could be deferred. Elders has not yet been able to quantify the impact on its financial results.

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In infrastructure,
Leighton Holdings
, which is building the city’s $4.1 billion Airport Link road that will connect to the Clem Jones Tunnel, said it expected parts of the project to be flooded over the next 24 hours. Construction equipment near Bowen Hills had been moved to higher ground to try to avoid water damage but offices were expected to be deluged with water.

Leighton has not outlined the flood’s impact on earnings but said it would assess the damage over the next few weeks. The construction group’s contract mining activities in Queensland had been affected “with varying degrees of severity", the company said.

Flan Cleary, chief executive of RiverCity, the owner of Brisbane’s financially troubled Clem Jones Tunnel, said the toll road was operating normally and was not experiencing any flooding. “It’s designed for a 1-in-a-1000 year flood," Mr Cleary said. “This is a 1-in-a-100 year flood." The company does not expect the underground tunnel, which has suspended tolls until midnight on Monday, to be flooded in coming days.

Mining services groups have been hit by the flooding, which has forced most coalminers to declare “force majeure", or an inability to deliver on contracts. Crane hire provider
Boom Logistics
was forced to evacuate two sites in Brisbane and a depot in Toowoomba because of flooding.

In addition, the heavy rains at coalmines in the Bowen Basin mean its operations there are running at only 50 per cent of capacity and are expected to remain subdued throughout January.

Boom estimates the severe weather to have lowered its earnings before interest and taxes by $1.2 million in December.

The company said it was too early to estimate the likely financial impacts of the latest deluge.

Meanwhile, contractor
Industrea
has been affected by flooding at Cockatoo Coal’s Baralaba mine, which has affected a mining contract worth $30 million a year.

Industrea said the production delay of “some weeks or potentially longer" at Baralaba was not expected to have a material impact on its overall results, despite Merrill Lynch having slashed its full-year earnings estimate by 10 per cent ahead of that announcement.

Caltex
shares fell 5.7 per cent after it said a steam outage at its Lytton refinery due to heavy rains would shave between $5 million and $10 million off its full-year earnings. Analysts had previously expected Caltex to report a $300 million profit this year.

The magnitude of the flooding in Queensland and NSW also means Caltex has had to adjust its supply chain to ensure it could get fuel to the Lytton, Gladstone, Mackay and Cairns terminals. Sales volumes in those areas have been affected, but so far not to levels deemed material.

Consumer goods groups are also feeling some impact from the flooding.
DuluxGroup
said it had been forced to temporarily shut down a paint manufacturing plant at Rocklea. The company said it was too early to say what, if any, impact the closure would have on ongoing operations as it had alternative facilities and existing stocks that could be drawn upon.

The flood damage is also affecting many companies not listed on the Australian Securities Exchange. Beverages group Lion Nathan shut its XXXX Brewery on Tuesday and said it could be closed for up to a week. XXXX is Queensland’s biggest-selling beer and the brewery produces about 100,000 cases of it a day. The Japanese-owned company had 38 containers of beer due to be shipped from Brisbane to Townsville but that has been delayed because of the port closure. Wheat exports are also being affected – Western Australia’s CBH Group was unable to load a grain vessel waiting off the Queensland coast.